Do not be reckless in investments or with purchases

Some things can only be learnt the hard way. At least that’s how many investors seem to have thought these past couple of years. Some of them splurged and had a good time; a few gambled in the stock market; still others went on a borrowing binge to buy their second car. And now as they face the music, the dissonance is painful.

And that pain, coupled with an uncertain future, many are turning overnight into fastidious savers, and suddenly appreciating that their parents’ way of life, uncool though it may have seemed, is better in the end. A businessman has lost count of the number of foreign holidays he had in the last three years. Business was doing well, and they never thought they were doing something wrong. His father often told him to save more for a rainy day, but the businessman never gave it much thought.

Financial advisors caution that it is natural for people to get carried away by the feel-good factor, and start splurging on things they love. There are countless cases of even the most thoughtful of people committing the silliest of mistakes. Recently, there was a case of a person who abandoned his entire savings plan, and was spending like there was no tomorrow.

Make hay while the sun shines. Money makes us happy. And lots of it can lull us into the delectable delusion that the good times will never stop. That is exactly how an employee was thinking, when he started getting regular performance-related rewards from his office. He neglected the fact that his profession was related to the stock market, and that he was riding the boom. He was doing really well, bringing in new clients everyday, and was rewarded well for it. His mistake was that he happily spent all the extra cash he got and now he is rueful.

Performance-related pay is a major part of his salary he may not get it this year. So now the employee is saving all he can. He had to cut down on unnecessary expenses, planning all purchases, and don’t intend to buy anything fancy. For a family holiday this year, they are going to a friend’s farmhouse. Moral of the story: save while the going is good.

Resist the temptation to tinker. A novice in the stock market was thrilled to see his money grow by leaps and bounds during the past two years. He decided to deploy more of it in the stock market. Within a year, he had broken all his fixed deposits and transferred the money to stocks. Luckily, at least his provident fund account escaped this fate. With the market being what it is these days, novice has watched his wealth shrinking as fast as it grew. The truth is finally sinking in: reckless investing doesn’t yield good results. Unfortunately there is nothing the novice can do. He readily admits that he himself is responsible for the mess. He entered into the market with his annual bonus of Rs60,000. He hadn’t really planned to put more cash into the market, but got carried away.

An employee, who used to work with a KPO says, from a 21 television to a 29 one, then to plasma, then LCD. He was just fascinated by latest gizmos. Computer accessories, iPods, because he was crazy about these things, and spent like crazy. He realized how perilous his financial situation was only when he got the pink slip from his employer. He had barely enough money to tide him over for a month. He don’t know what would have happened if he hadn’t got the current job within that time.

Being single, he was able to scrape through somehow. He is grateful for the lesson, scary though it was. His mistake was that he never really needed the stuff he was buying. There is really no need to upgrade to plasma TV from 29” TV in six months.

Listening to advice is important, but listening to all and sundry could be one of the costliest mistakes an investor could make. Worse, it could lead an investor to alter a perfectly sane investment plan.

Most people don’t understand that the opinions they hear in the media are mostly an expert’s take on a particular trend. As a lay investor, you can’t change your investment plan based on some passing trend. One should understand that such advice is meant only for speculators.